Compromise includes billions in special tax breaks

WASHINGTON -- In the last-minute dealmaking to stop the nation
from tumbling over the so-called fiscal cliff, Congress and the White House
decided not to spare most people from a hike in Social Security payroll taxes.
But they did find room for billions in special tax breaks for rum makers,
racetrack owners, railroads - and Hollywood studios.

Riding along on the compromise bill were dozens of provisions
that renewed existing tax breaks. All told, the business tax breaks will cost
more than $63 billion next year, according to an analysis by the Joint Committee
on Taxation.

The total cost doesn’t add up to much when compared to the rest
of the federal government’s $3.5 trillion budget. Supporters of such deals said
that by helping businesses, the measures protect jobs.

Watchdog groups, however, said the survival of the subsidies
exposes the broken nature of the tax system - and Congress’ inability to tackle
it.

“These are basically spending subsidies written into the tax
code, and there was just no discussion about them,” said Robert Bixby, executive
director of the Concord Coalition, which advocates for fiscal
responsibility.

So how did the special deals make it into the fiscal cliff
compromise?

“The White House insisted,” said Don Stewart, a spokesman for
Senate Minority Leader Mitch McConnell. The White House didn’t respond to a
request for comment.

The measures did get examined in detail by the Senate Finance
Committee, which approved them by a 19-5 vote in August. The package also
includes extensions on popular breaks that benefit individuals, including the
deduction for state and local taxes.

Sen. Tom Coburn, R-Okla., one of the few who voted against the
measure in committee, said he fought vigorously against what he called “tax
goodies for special groups.”

“I lost every vote,” he said.

“I’m sure there were people on both sides that wanted it in” the
fiscal cliff deal, Coburn said. “You have people calling for fairness, but they
want to protect the wealthy or their supporters. And that’s on both sides of the
aisle.”

The rum excise deal has come under particularly harsh criticism
in Congress. Under the 100-year-old arrangement, the government collects a tax
on rum and returns nearly all of it to Puerto Rico and the Virgin Islands to
support public programs - distributing $547 million in fiscal year 2009.

In 2008, the Virgin Islands agreed to use that money to finance a
new Captain Morgan distillery for Diageo, the giant British spirits company. The
company moved its operations from Puerto Rico. Now, other rum makers have gotten
in on the deal, and critics say the tax, rather than helping average people, has
become a subsidy to the industry.

“The purpose is to help the citizens, not simply give it back to
the producers,” said Pedro Pierluisi, Puerto Rico’s delegate to Congress, who
has been trying without success to push legislation limiting the corporate
subsidies.

Supporters of the tax breaks rejected the criticism that the
provisions were giveaways snuck into the fiscal cliff package. Senate Democratic
aides noted that the package of tax extenders passed the Finance Committee with
overwhelming bipartisan support in August and always had been in consideration
for inclusion in a year-end fiscal bill.

“This was not some last-minute deal,” said Sean Neary, a
spokesman for Sen. Max Baucus, D-Mont., the finance committee chairman. The
fiscal cliff deal preserves “vital tax cuts” for small businesses, working
families, school teachers and military families, he said.

Included in the bill is an extension of a tax break for film and
television productions that shoot in the United States, allowing them to expense
the first $15 million of costs (or $20 million if the production occurs in
economically depressed areas.) The incentive will cost an estimated $266 million
in 2013.

Movies such as “Up in the Air” and “Transformers: Dark of the
Moon” and television shows such as “Royal Pains” have benefited from the
provision, according to Kate Bedingfield, a spokeswoman for the Motion Picture
Association of America.

The so-called “NASCAR tax break,” which will cost an estimated
$46 million this year, allows motor racing tracks to depreciate assets faster
than other businesses.

“This tax provision is a job creator,” said Rep. Mike Thompson,
D-Calif., whose district includes the Infineon Raceway in Sonoma. “Without it,
folks would see job losses.”

Steve Ellis, vice president of Taxpayers for Common Sense, a
group that advocates cuts in Washington spending, said he was surprised to learn
the provisions made it into the bill.

“I guess I shouldn’t have been,” he said. “They’re like the
cockroaches of Washington policy. They always survive.”

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